Q & A Saturday – What is an Assumable Mortgage?

Welcome to our Q & A Saturday video.

In these Q & A Videos we will answer your questions about real estate. Any real estate related topic from questions about selling your house, buying a house, real estate investor questions, land lording questions, local market questions and many others things are all fair game.

Today’s question is “What is an Assumable Mortgage?“

In this video Shaun talks about what is an Assumable Mortgage and how they work.

Some of the main points covered in this video are:

1) What is an Assumable Mortgage.

2) What are the advantages.

3) What are some of the drawbacks.

4) What types of mortgages are most likely to be assumable.

An assumable mortgage used to be a pretty common way to purchase a house until the early 1980’s. Sellers would offer their houses up with possible financing in place and there was not much to taking over a mortgage and the seller no longer being obligated to paying the loan, the new owner would be. However at that time banks realized they were losing a lot of potential income as rates were in the double digits for home mortgages and the loans being assumed were far less than this. At this time the “Due on sale” Clause started being very common and soon would be found in all conventional mortgage loans. Typically today the only loans that can potentially be assumed are FHA and VA loans. Even with those the new borrower will have to go through a qualifying process that is not much different than the one needed to get a new loan.

There are definitely some advantages to the seller if the loan is assumed vs. being taken “subject to”, which essentially is the same result except that the sellers name is still on the loan and they are ultimately still responsible if the new buyer does not pay it. Therefore, MUCH less risk for the seller in this scenario. On the opposite side it will be more risky for the buyer since in this case they are responsible for the loan when in a Sub To deal they can walk away unscathed (The ethics of this is a different story…).

The only real reason to want to take on as assumed mortgage would be if the terms are much better than the ones available to the new borrower. Unlike a Subject To situation the borrower needs to qualify so the only reason to assume is if the rates and terms are very good. Currently with the very low interest rates on mortgages there is not likely to be a big spread here.

In summary while assumable mortgages used to be very common they no longer are. Only a small subset of mortgages generally have the possibility of being assumable and with the more stringent qualifying process needed (unlike back in the 70s and 80s) the advantages of the process is limited as well for the buyer. So while still possible it is not a very useful method to sell a house and not a particularly advantageous method to buy one either.

Hope you enjoyed the video and leave any other questions you have about the topic below or any other topics you would like to see covered in future videos. I encourage anyone that has things they would like to talk about to let me know what they are. You can always fill out a contact us form here and put Q & A in the subject, just leave a comment with your questions below here, send an email to info@masshomesale.com, or post it on our Facebook page or Twitter account.